It's not quite time to pop the champagne.
January 11, 2015
Photo Credit: Shutterstock.com
Lots of people are cheering that the U.S. economy has shown signs of
strengthening. The stock market looks to be doing better than anyone
expected, and unemployment is under 6 percent. But are things really as
good as they seem? We are a bit skeptical. Let’s take a look at some
signs that things are not altogether well in the American economy.
1. The middle class is still shrinking.
no secret: The American middle class is in rough shape and is no longer
the world’s beacon of economic opportunity. The latest jobs report data
shows not stagnant, but falling
wages, the bulk of it happening with nonsupervisory workers. That is very bad news.
there’s the fact that the share of the nation’s economic gains going to
the middle class has fallen to near-record lows. As the costs of
childcare, higher education and housing keep going up, more folks feel
the squeeze. Obamacare has done a number on people in the middle, who
are mostly not entitled to subsidies and must therefore pay an outsized
portion of their income for insurance.
The shift from a pension
system to the 401(k) has been a disaster for the middle class, and
Republicans will try their best to tear away at Social Security and
other programs that help people stay out of poverty. The decimated
middle-class has been blamed for store closings and a host of other
economic ills, and unfortunately, the trend of policy tilted to favor
corporations and America’s financial elite means that relief will be
hard to find.
2. Inequality hurts economic growth.
America’s middle class has shrunk, income inequality has steadily grown
in the U.S. Steven M. Fazzari and Barry Z. Cynamon, in reports for the
Institute for New Economic Thinking’s project on the Political Economy of Distribution
, find that growing inequality is directly linked to America’s slow recovery in the wake of the Great Recession.
researchers discuss the fact that if the bottom 95 percent does not
have money to spend, this in turn impacts things like job creation.
Before the financial crash, the bottom 95 percent was borrowing to keep
up, but now credit is not as widely available and so there hasn’t been
enough spending to boost the economy. America’s production has therefore
started to become geared toward high-end consumers. As they put it
“we are moving more and more to a society in which the work of the
middle class….goes to serve the consumption of the affluent [which] may
ultimately lead to social tension and a growing sense of injustice in
Bottom line: inequality keeps the economy from prospering.
3. State of the unions.
ensure that American workers have the purchasing power they need to
drive the economy. Their weakening crushes consumer demand and acts as a
driving force in destabilizing economic inequality. Unfortunately,
federal government labor statistics show a decade of declining union
membership across the country.
Recent trends are not promising: a
2014 U.S. Supreme Court ruling which excludes certain government workers
from being compelled to pay union dues was a blow to collective
bargaining. The midterms saw re-elections for anti-union governors Scott
Walker of Wisconsin and Rick Snyder of Michigan, both states with a
long history of strong labor movements.
In the next two years,
expect Republicans, who now completely control 24 states, to go to any
lengths to weaken unions, especially at the state level. They’ll be
churning out "right-to-work" bills and proposing measures designed to
decrease the share of income that goes to working people. On the
positive side, the AFL-CIO recently held a “Raising Wages” summit
keynoted by Sen. Elizabeth Warren, which proposed a new way forward for
the Democratic Party to focus things like higher minimum wages, but
that’s not nearly enough. Higher minimum wages don’t help enough when
you're insecure or part-time, you don’t know what your work schedule is
from day to day, or if you don’t have a job at all.
4. The world economy is in trouble.
as the U.S. seems to be improving, the global economy is not looking so
good, with the possibility of a prolonged downturn in Europe most
worrisome. Europe appears to be sliding into deflation on a
continent-wide basis, a problem that carries with it the prospect of a
much steeper fall. There are serious financial worries in the air
because some banks could go down if Greece or other countries
restructure debt. The bank situation could hit the U.S. through credit
default swap purchased by American financial companies. Remember AIG in
2008? If you do, you will not have to guess who will be on the hook if
these companies fail. You, the taxpayer, that’s who!
A slowdown in
China seems clear, which pulls down almost all the rest of the
developing world — countries like Brazil and Russia — in terms of stable
exports. Experts are concerned that many third-world countries have
borrowed in dollars — and the dollar is rising, close to a 10-year high
(Europe has also increased the demand for dollars). This can cause a
number of serious problem. For foreigners, it becomes much more
expensive to pay back borrowed dollars. On the U.S. side, American
exports fall as the dollar rises. All of which causes economic
Which brings us to the next topic: the chance of another catastrophic blowup.
5. Another financial crisis?
When a lot of economists talk about the next financial crisis, they aren’t talking about if. They’re talking about when.
face it, too-big-to-fail banks are still a giant threat, and they are
still too big to regulate. The Republicans — with many Democrats — are
rolling back significant pieces of the Dodd-Frank legislation meant to
curb Wall Street excess. Just two weeks ago, the banks got their way in
the congressional budget, which gave them permission to move risky
derivatives into the insured portions of the bank. Crank up the casino!
Again, guess who will be asked to pay to clean up the mess when
speculation fever takes over? You, the taxpayer.
There’s also the
matter of a nasty mess known as the shadow banking system, which
involves stuff like hedge funds, trust companies and financial firms
other than banks. It played a huge role in the last financial crisis,
and it’s growing again. Nobody really has a handle on it, but what is
known is that shadow banking increases the chance that systemic risk
will be set off from the gaps that exist between it and traditional
The global financial system is fragile, and the fact that
developing countries will have trouble paying back dollar loans given
the strong dollar is a formula for disaster. It means companies are more
likely to go bust, which leads to defaults, which means that whoever
made the loans is out the money. The world is deeply interconnected
financially, and it only takes one piece of the web to fray for the rest
to start unraveling.
Lynn Parramore is
contributing editor at AlterNet. She is cofounder of Recessionwire,
founding editor of New Deal 2.0, and author of "Reading the Sphinx:
Ancient Egypt in Nineteenth-Century Literary Culture." She received her
Ph.D. in English and cultural theory from NYU, and she serves on the
editorial board of Lapham's Quarterly. Follow her on Twitter
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